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Tuesday, August 30, 2011

Where Dictators Hide Their Money

Muammar Gaddafi is reported to have been worth more than $90 billion, but the rebels who broke into his compound found no trace of him or his fortune. Jeffrey Robinson speculates on the money’s whereabouts.

By Jeffrey Robinson

Muammar Qaddafi (John MacDougall / AFP-Getty Images)

During the first week of “Dictators’ School,” they teach you that cash is king, and gold is pretty good too, except gold is heavy.

It’s a lesson the world’s despots take to heart. Witness Ferdinand Marcos leaving Manila in 1986 with 24 suitcases of gold bricks. And, more recently, Tunisia’s Ben Ali fleeing with a ton and a half of gold.

In March, the Financial Times reported that Muammar Gaddafi’s stash was worth $6.5 billion. Yet, when the rebels seized his compound last week, there were no reports of huge gold or cash finds. The headline was Gaddafi’s scrapbook of Condoleeza Rice photos. So the question has to be, was Gaddafi playing hooky during his first week at Dictator’s School?

Hardly. This is a guy who spent 42 years using the Central Bank as his personal checking account. Supposedly worth in excess of $90 billion, he’d clearly hidden enough gold and cash to pay his mercenaries.

Being a despot under pressure is an expensive business.

And therein lies one of the clues to where Gaddafi might be headed. Some of those mercenaries are from Zimbabwe, members of Robert Mugabe’s presidential guard regiment. As Mugabe has been reported to have offered Gaddafi safe passage, it’s a good bet that gold has been shipped to Zimbabwe to sweeten the welcome.

Gaddafi’s other invitation for exile comes from Venezuela’s dying president, Hugo Chavez. Moving gold hidden offshore behind a duck blind of shell companies to Caracas is even easier, when you know how.

However, the bulk of Gaddafi’s fortune seems to be tied up in the Western banking system. Normally, bankers should be on the lookout for accounts in the name of M. Gaddafi, last known address Tripoli. Under the guise of U.N. sanctions, the U.S. has already frozen $37 billion, the British $19.6 billion, and the Germans $10.5 billion.

Some of that was bedded down by the Libyan Investment Authority. Little more than a Gaddafi front, it was used by the dictator to acquire real-estate holdings, shares in at least two European banks, shares in several blue-chip companies, and a stake in the Italian soccer club, Juventus.

But obvious assets are not what his future is about. In the end, it hangs on the years his son Saif spent in Britain.

Ostensibly there to coerce a Ph.D. out of the London School of Economics—he got it, handed the LSE a $2.5 million gift, a scandal ensued, the money was returned, the LSE director who accepted it resigned, and Saif’s now been accused of plagiarizing parts of his thesis—what he was really doing was learning the ways of the City of London.

Just like his pal Gamal Mubarak—Hosni’s son, who spent two years figuring out how to launder family money while working his day job at the Bank of America—Saif was a man with billions to spend.

The City of London, being one of the world’s major banking capitals, maintains an aura of propriety while being one of the world’s primary money-laundering sinks. Foreign bankers are plentiful, competition and greed is rampant, and regulation is lax. The Financial Services Authority, which is supposed to take a dim view of these things, is funded by the banks and has become so incompetent that there are plans to abolish it.

The biggest hurdle Saif had to overcome is the much talked about, little enforced statute that deals with “PEPs” or “politically exposed persons.”

The statute was put into place to prevent despots from looting their own treasuries, so anyone with the last name Gaddafi is a poster child PEP. Which means that bankers in London who met with Saif should have reported any sums involved, and frozen them.

But this is London and all Saif had to do was explain that these funds were not his father’s, then double-talk his way through the details of some dubious corporate structure. At that point, every banker would ask himself, if I do the right thing and report my suspicions, how much will that cost me in fees?

When the guy in front of you is looking to hide billions, and your fees are rapidly ticking into the tens of millions, it’s Hobson’s choice.

The Brits learned this from the Swiss, who were the original masters of plausible deniability. For years, they’ve talked a good game, while having shown no shame about turning a blind eye to dirty money. In contrast to Gaddafi’s billions frozen in the U.S., Britain, and Germany, the Swiss have only come up with a paltry $817 million. But then, Switzerland is for yesterday’s despots.

Enter here a new player. Especially for the Arab world.

Dubai.

That city-state rocked in the '90s, and banks sprung up like palm trees. At least one planeload of Russians bearing wads of fresh U.S. $100 bills landed in nearby Sharjah every day so they could launder drug money through Dubai’s huge gold souk.

Then came the crash. Property values went through the floor and even the Russians stopped coming. The banks needed to do something, so they turned themselves into the Switzerland of the Gulf. Today, Dubai is the money-laundering heart of the Muslim world. Three times more dirty money goes back and forth between Dubai and Pakistan via the paperless “hawallah” network, than through normal banking circles.

The BBC is reporting that Gaddafi had offered 25 tons of gold to whoever would assure his freedom. Getting that much gold out of Libya with $2 million on his head—dead or alive—and no air traffic, ain’t easy. But sources in the U.K. say that he’d long ago managed to get as much as $3 billion in cash and gold out of Libya and into London.

The groundwork done, Saif would have had no problem moving those assets to Dubai and on to—why not Caracas?—without any serious controls.

Saif’s old man now merely has to pull off his Houdini act.

If he somehow manages that, Dictator School textbooks won’t have to be rewritten.

-This article was published in The Daily Beast on 26/08/2011
-Jeffrey Robinson is the author of several books on money laundering, including The Laundrymen, The Merger and The Sink. His latest book, published this month, is The Takedown: A Suburban Mom, A Coal Miner’s Son, and the Unlikely Demise of Colombia’s Brutal Norte Valle Cartel

About Me

I graduated from the French University in Beirut (St Joseph) specialising in Political and Economic Sciences. I started my working life in 1973 as a reporter and journalist for the pan-Arab magazine “Al-Hawadess” in Lebanon later becoming its Washington, D.C. correspondent. I subsequently moved to London in 1979 joining “Al-Majallah” magazine as its Deputy Managing Editor. In 1984 joined “Assayad” magazine in London initially as its Managing Editor and later as Editor-in-Chief. Following this, in 1990 I joined “Al-Wasat” magazine (part of the Dar-Al-Hayat Group) in London as a Managing Editor. In 2011 I became the Editor-In-Chief of Miraat el-Khaleej (Gulf Mirror). In July 2012 I became the Chairman of The Board of Asswak Al-Arab Publishing Ltd in UK and the Editor In Chief of its first Publication "Asswak Al-Arab" Magazine (Arab Markets Magazine) (www.asswak-alarab.com).

I have already authored five books. The first “The Tears of the Horizon” is a love story. The second “The Winter of Discontent in The Gulf” (1991) focuses on the first Gulf war sparked by Saddam Hussein’s invasion of Kuwait. His third book is entitled “Israeli-Palestinian Conflict: From Balfour Promise to Bush Declaration: The Complications and the Road to a Lasting Peace” (March 2008). The fourth book is titled “How Iran Plans to Fight America and Dominate the Middle East” (October 2008) And the fifth and the most recent is titled "JIHAD'S NEW HEARTLANDS: Why The West Has Failed To Contain Islamic Fundamentalism" (May 2011).

Furthermore, I wrote the memoirs of national security advisor to US President Ronald Reagan, Mr Robert McFarlane, serializing them in “Al-Wasat” magazine over 14 episodes in 1992.

Over the years, I have interviewed and met several world leaders such as American President Bill Clinton, British Prime Minister Margaret Thacher, Late King Hassan II of Morocco, Late King Hussein of Jordan,Tunisian President Zein El-Abedine Bin Ali, Lybian Leader Moammar Al-Quadhafi,President Amine Gemayel of Lebanon,late Lebanese Prime Minister Rafic Hariri, Late Palestinian Chairman Yasser Arafat, Haitian President Jean Claude Duvalier, Late United Arab Emirates President Sheikh Zayed Bin Sultan Al Nahyan,Algerian President Shazli Bin Jdid, Jamaican Prime Minister Edward Siyagha and more...